Best Buy Co. Inc. (BBY), the top U.S. electronics chain, Tuesday posted quarterly profit that fell short of Wall Street forecasts as costs increased, sending its shares sharply down.

The company also forecast earnings for the current quarter below analysts' estimates.

Profit for the second quarter ended Aug. 27 totaled $188 million, or 37 cents a share, a penny short of the average estimate of 38 cents a share among analysts polled by Reuters Estimates.

Earnings were up 48 percent from the year-earlier $127 million, or 26 cents a share.

Credit Suisse First Boston said gross margin topped its expectations but costs rose more than projected, mainly because stock options were treated as expenses. "This is not as bad as it may look," the firm said in a research note.

Costs also rose as Best Buy overhauled its stores. The company is converting more stores into a format that tailors products and services for specific audiences such as suburban moms and technology enthusiasts.

Sales at stores open at least a year rose 3.5 percent in the second quarter, down from an increase of 4.3 percent a year earlier. The chain said demand for higher-priced items such as MP3 players, notebook computers and flat-panel televisions (search) was strong, but sales of lower-priced goods such as CDs, DVDs and telephones declined.

Second-quarter revenue rose 10 percent, to $6.7 billion.

Strong categories were consumer electronics (search), which accounted for 41 percent of sales and had an 11.4 percent same-store sales rise; and appliances, which accounted for 7 percent of revenue and had a same-store sales rise of 10.9 percent.

Home office products, which represent 36 percent of revenue, had a same-store sales decline of 0.7 percent, reflecting lower sales of telephones and desktop computers. Entertainment software same-store sales were down 7.2 percent, reflecting softness in movies and music.

The company said it expects profit of 28 cents to 32 cents a share for the third quarter and reiterated guidance of $2.07 to $2.17 a share for the full year. The year guidance excluded impact from Hurricane Katrina (search), which affected 15 stores.

Analysts expected 34 cents for the quarter and $2.23 for the year, according to Reuters Estimates.

Best Buy shares, the top percentage loser on the New York Stock Exchange (search), were down $4.22 at $46.14. Shares of rival Circuit City Stores (CC) were down 62 cents, or 3.7 percent, at $16.30.